State Tax Reform Opportunities and Challenges: The STAR Partnership

States spent most of last year wondering what form federal tax reform could take. Would Congress upend the income tax structure in favor of a border adjustment tax or would they just cut rates? What deductions would survive reform? How would these and a myriad of other possible changes affect their revenue picture? While the passage of the Tax Cuts and Jobs Act provided a certain amount of policy clarity, states were still left scrambling as they tried to get a handle on the Act’s full implications during brief (for most) state legislative sessions.

Since the beginning of the year, we have identified more than 60 bills introduced in 25 states that respond directly to the new federal regime. For example, a proposed constitutional amendment in California (CA ACA 22) would levy a new 10 percent surcharge on all corporations in an effort to make them pay “their fair share” in the wake of tax reform. New York Governor Andrew Cuomo (D) has proposed allowing businesses to opt into a new payroll tax system in order to allow individuals to skate around the new caps on state and local taxes (SALT). New Jersey is considering a bill (NJ SB 11) that would levy new taxes on pass-through entities.

While states have begun to grapple with the full implications of federal tax reform, the majority of their efforts so far have dealt with adjustments to the personal income tax code. We believe that states will soon be turning their attention more directly to business tax concerns, including selective coupling to new depreciation rules, levying new entity-level taxes, and establishing treatments for global intangible low-tax income (GILTI).

These debates could have systemic and long-lasting effects on broad swaths of the business community. As such MultiState Associates has teamed with the law firm McDermott Will & Emery to create the State Taxes After Reform (STAR) Partnership to provide a venue for business to come together and participate in these debates under a unified banner.

More specifically, the STAR Partnership will seek to provide a number of specific services for its membership, including:

• Tracking proposed state legislative and regulatory action in real time;
• Providing in-depth analysis of these proposals in order to craft amendments or comments;
• Deploying advocacy campaigns to secure favorable legislative and regulatory outcomes;
• Preparing advocacy collateral;
• Coordinating on-the-ground advocacy, including retaining in-state advocates where needed; and
• Activating allied organizations to ensure broad support.

Given the high stakes environment that states will be creating, these services will be essential for businesses looking to ensure that their interests are represented at the table.

For more information, please contact Joe Crosby at jcrosby@multistate.us.

Ryan Maness contributed to this post.